A deed of lands, absolute in form, with general warranty of
title and an agreement by the vendee to reconvey the property to
the vendor or to a third person, upon his payment of a fixed sum
within a specified time, do not of themselves constitute a
mortgage; nor will they be held to operate as a mortgage unless it
is clearly shown, either by parol evidence or by the attendant
circumstances, such as the condition and relation of the parties or
gross inadequacy of price, to have been intended by the parties as
a security for a loan or an existing debt.
The fact of a collateral agreement by the grantee in a deed of
real estate to reconvey to the grantor on the payment of a sum of
money at a future day is not inconsistent with the idea of a
sale.
Whether the transaction in dispute was a sale or a mortgage is a
question of fact, to be determined from the proof, and here the
proof shows it to have been a sale.
The case is stated in the opinion of the Court.
Page 129 U. S. 59
MR. JUSTICE LAMAR delivered the opinion of the Court.
This is a suit in equity originally brought in a state court by
the appellees against the appellant and one E. R. Ford to quiet the
title to about 3184 acres of land in Sioux and Clay Counties in the
State of Iowa.
The petition alleged that on February 17, 1875, the defendant,
John A. Wallace, who was then the owner in fee of the land in
dispute, by a deed of warranty, which was afterwards duly recorded,
for a valuable consideration, sold and conveyed the same to the
plaintiffs and one William Leighton; that on the same day, said
grantees executed and delivered to the defendant Ford a contract in
writing, giving him the option, for the period of sixty days from
that date, of purchasing the land in question upon the payment by
him of the sum of $5,876, which contract was on that day assigned
by Ford to defendant Wallace, and was afterwards duly recorded;
that Leighton afterwards conveyed his undivided one-fourth interest
to the plaintiff C. F. .Davis, who afterwards conveyed one half
thereof to plaintiff Edward Johnstone; that neither of the
defendants ever paid anything on the lands, and neither ever
Page 129 U. S. 60
exercised the option of purchasing within the time specified in
the option contract, or at any time thereafter, and that the rights
of the defendants under that contract had become forfeited; that
the plaintiffs, upon the purchase of the lands, assumed control of
them and had paid the taxes thereon; and that the defendants had no
rights under the contract nor any interest, legal or equitable, in
the lands, but the contract, being upon the records of the counties
where the lands lie, constituted a cloud upon the title to
them.
The prayer of the petition was that the option contract be
declared forfeited, rescinded, and cancelled, and the title to the
plaintiffs be quieted against all claims of the defendants or
either of them, and for further relief, etc.
Defendant Wallace answered, admitting the execution and delivery
of the deed and, option contract of February 17, 1875, but alleging
that, taken together, they were understood by the parties thereto
as constituting a mortgage for the security of the money received
by him at that time, which was in reality a loan; alleging further
that the transaction was to avoid the effect of the usury laws of
Iowa, the plaintiffs not being willing to accept simply the legal
rate of ten per cent interest on such loan; that the lands were
worth at that time fully $20,000, and the money actually, received
by him was only about $4,250; that defendant Ford never had any
real interest in the option contract, but actually assigned it to
him before it was signed and executed by the plaintiffs and
Leighton, all of which was well known to said parties; that the
loan was obtained in good faith, and he was willing to bind
himself, in the way he did, for said $5,876, for the use of the
said $4,250 for sixty days, because he badly needed money, and
believed he could sell the land so as to pay off the loan and leave
a large surplus for himself; and that this defendant has considered
himself indebted to plaintiffs and Leighton in the sum of $4,250,
and lawful interest from February 17, 1875, and now asks that he be
required to pay only that amount.
He therefore prayed that said deed be declared by the court to
be a mortgage; that the title to the real estate be decreed to be
in the defendant, subject to such claim as the
Page 129 U. S. 61
plaintiffs may legitimately have against it by virtue of that
deed and any taxes they have paid; and that defendant have a legal
right to redeem, as provided by law, upon such terms of payment of
such amount as the court shall think just and proper, and for other
and further relief, etc.
The suit was then removed into the United States Circuit Court
for the Southern District of Iowa upon the ground of diverse
citizenship of the parties, where defendant Wallace filed a
cross-bill substantially in matter and form the same as his answer,
asking to redeem. Plaintiffs replied to the answer of Wallace, and
answered his cross-bill denying every material allegation therein
not in harmony with the allegations of the petition. Defendant Ford
answered, admitting all the allegations of plaintiffs' petition and
disclaiming any interest in the lands. Testimony was taken, and the
decree of the circuit court was in favor of the plaintiffs; the
option contract was cancelled and annulled; the title to the lands
in question was quieted in the plaintiffs forever as against any
claim thereto on the part of either of the defendants or anyone
claiming under them through the option contract; and the cross-bill
of defendant Wallace was dismissed. From this decree Wallace prayed
and perfected an appeal, which brings the case into this Court.
The sole question presented in the case is was the transaction
of February 17, 1875, an absolute sale or a mortgage? If this
question could be determined by inspection of the written papers
alone, the transaction was clearly not a mortgage, but an absolute
sale and deed accompanied by an independent contract between the
vendee and a third person, not a party to the sale, to convey the
lands to him upon his payment of a fixed sum within a certain time.
Upon their face there are none of the indicia by which courts are
led to construe such instruments to be intended as a mortgage or
security for a loan; nothing from which there can be inferred the
existence of a debt, or the relation of borrower and lender between
the parties to the deeds or between the parties to the
contract.
The question whether the extrinsic proof shows that the
Page 129 U. S. 62
$4,250 was a loan to Wallace, and that the deed and option
contract were made to secure its repayment with large interest, is
a question of fact to be determined by the circumstances attending
the execution of the instruments in question.
The evidence as it appears in the record is much less
contradictory than is usual in such cases where it is sought by
parol testimony to change an absolute conveyance, with collateral
agreement for a repurchase, into a mortgage.
With the single exception of the appellant, all the witnesses
conversant with the negotiations between the parties unite in
giving testimony tending to show that the transaction was a
purchase of the lands by the appellees for the purpose of acquiring
the property, and that they made a collateral agreement with Ford
that if he or his assigns should, within sixty days, deposit in
bank to their credit the sum of $5,876, they would convey the lands
to them.
It is not necessary to discuss the testimony in detail. There
are two points, however, to which we will make reference. Edward
Johnstone, one of the appellees, after giving the particulars of
the contract as expressed in the papers, says:
"Upon the purchase of these lands, we went into possession of
them and we paid taxes for them, and sold a portion, and I never
heard anything of any claim of Mr. Wallace of this being a loan
until I saw it set up in his answer to this case. . . . I never
heard from Dr. Ford or Mr. Wallace that he wanted a loan; there was
never such a thing as a loan intimated."
"Did you ever hear Mr. Leighton say anything on the
subject?"
"I talked frequently to Mr. Leighton and Mr. Davis and Mr.
Connable, and I never heard a word said that would intimate that a
loan was desired by Mr. Wallace; it was all with reference to the
purchase of these lands."
Both Davis and Connable testify to the same effect. Each denies
positively that a loan was proposed or a debt incurred or a
mortgage at any time contemplated. These statements are strongly
corroborated by the other witnesses, and are not contradicted even
by the appellant.
Page 129 U. S. 63
E. R. Ford, the agent of Wallace, who initiated negotiations
between the parties and who was present at the execution and
delivery of the papers, the option contract being made with him,
being called as a witness for the appellant, testified: "That the
deed and option contract expressed the whole transaction. . . . I
didn't so understand it as a loan." In response to the question "In
your negotiation, you did not understand it in that light as a loan
?," he answered:
"I did not. From the beginning, in St. Louis I think it was, my
own suggestion as to this option of repurchase, knowing that a
mortgage or deed of trust would not be accepted for a short loan,
as no loan was contemplated, the subject matter of a loan was left
out of the question altogether."
And he proceeds afterwards to state in reference to his
suggestion to Mr. Wallace that he should make a sale and take back
the contract of repurchase within a stipulated time and for a
stipulated price, that it was the only method he thought of,
believing, as he did,
"that a sale might be effected, but that a short loan could not
be made upon unimproved lands; hence I am quite positive that the
subject of loans was not entertained at all."
He also states:
"That the question of interest was never discussed between the
parties, and that whatever compensation the purchasers would
consider in tie matter would be in the nature of a profit of the
land in selling."
W. B. Collins, who was the attorney for the appellees, states
that the appellant, his agent, Ford, and Leighton, one of the
purchasers, frequently met at his office and conversed about the
pending negotiations for the sale of the land; that they always
spoke of it as a sale and purchase, and that he did not hear at any
time of its being a loan.
There is but one witness, the appellant Wallace, who testifies
that the transaction was a loan. His statements as to any
particular fact are singularly indefinite, inconsistent, and
unsatisfactory. His testimony consists largely, of his version of
certain conversations and arrangements with Leighton, who died
before the commencement of the suit.
These arrangements looking to the loan and mortgage he expected,
as he alleges, to be carried out by the appellees, but
Page 129 U. S. 64
he admits, after many indirect answers, that he does not
remember any conversations with the appellees, or any one of them,
in which the transaction was spoken of by himself, or by them, as a
loan, or in which the subject of interest was mentioned between
them -- or in his own language, "it is more than likely that I did
not have such conversation." If there was no other testimony in the
case than that of the appellant, we do not think the proof
sufficient to overcome the effect due to the clear and distinct
terms of the written instruments.
But it is urged by appellant's counsel that the disparity
between the price paid for the lands and their actual value shows
the transaction to be a loan, and not a purchase. The evidence on
this subject is at first view contradictory, some of the witnesses
putting a market value per acre of such lands in large lots at the
price paid for them by the appellees, others stating their value to
be from $2.50 to $3.00 per acre. The real fact, taking all the
testimony together, seems to be that those lands, when sold in
small areas to actual settlers for the purposes of habitation,
would bring the higher prices, whilst in large quantities they
could be sold to speculators, for profit, only at the lower
prices.
Nothing presented by the assignment of errors calls for
correction. The legal questions which they raise have been settled
beyond doubt or controversy by repeated decisions of this
Court.
A deed of lands, absolute in form with general warranty of
title, and an agreement by the vendee to reconvey the property to
the vendor or a third person upon his payment of a fixed sum within
a specified time, do not of themselves constitute a mortgage, nor
will they be held to operate as a mortgage unless it is clearly
shown either by parol evidence or by the attendant circumstances,
such as the condition and relation of the parties or gross
inadequacy of price, to have been intended by the parties as a
security for a loan or an existing debt.
Cadman v. Peter,
118 U. S. 73,
118 U. S. 80;
Coyle v. Davis, 116 U. S. 108;
Howland v. Blake, 97 U. S. 624;
Horbach v. Hill, 112 U. S. 144.
The fact of such a collateral agreement to reconvey is not
inconsistent with the idea of a sale.
Page 129 U. S. 65
When the time fixed for the payment elapsed, Wallace's right to
repurchase became extinct, and appellees held the lands discharged
from any claim upon his part.
The decree of the court below is
Affirmed.